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Future of top US Bitcoin exchange in doubt after hackers grab $250,000

BitFloor, a major Bitcoin exchange and the biggest in the US, today suffered a devastating loss after their servers were compromised and 24,000 Bitcoins were taken — a value of roughly $250,000.

The affected servers contained a backup of BitFloor wallet keys. The main files reside in an encrypted area, and the problem occurred after the site’s operator did a manual upgrade and put these files in an unencrypted area, according to Roman Shtylman on Bitcointalk. Wallet keys are required to send funds from a Bitcoin wallet to any other address.

Shtylman reports that the USD funds BitFloor is holding remain secure, but the substantial loss means it cannot cover all account balances in BTC and will be ceasing operation until a plan ahead is sought. Proceeding ahead under a fractional banking system, in which a bank keeps a fractional reserve but lends out the majority of money deposited to earn interest, is presumably the motive for the immediate closure. Such a model is not necessarily in the spirit of Bitcoin given its nature as an alternative to traditional currency and banking structures that have failed many in recent years.

However, it is likely that if BitFloor is to resume operations it will have to adopt this model until it has replaced the missing funds. According to Shtylman, BitFloor only makes about 210 BTC per month in transaction fees. Another possibility under consideration is the use of investors to make up the shortfall until it can be repaid.

If no workable solution comes to light, one distinct possibility is bankruptcy. “As a last resort, I will be forced to fully shut BitFloor down and initiate account repayment using current available funds,” Shtylman said in the announcement.